Aided by lax oversight and a personal connection, the owners of a technology firm stole at least $6.5 million from the city’s Education Department by vastly overstating how much they paid their workers and submitting false documents to city agencies, the special investigator for the New York City school system charged in a report issued on Wednesday.
Investigators also accused the official, who was then executive director of the Education Department’s Division of Financial Operations, of helping to enable the fraud by giving the firm, Future Technology Associates, access to confidential information. She also had a “close personal relationship” with one of the owners, the investigators found.
“Her loyalty was to him, not to the Department of Education,” Richard J. Condon, the special commissioner of investigation, said in an interview. “And she was in an important position.”
Mr. Condon described how the official, Judith Hederman, sent a text message to Jonathan Krohe just before and after she had spoken with investigators, and tipped him off repeatedly to concerns about the firm’s conduct.
The accusations against Future Technology Associates are the latest in a series of embarrassing reports of theft by highly paid technology consultants hired by the Bloomberg administration. As was intended with CityTime, the city payroll system that federal prosecutors say was bled by corrupt consultants of $80 million, Mr. Krohe, 35, and the other owner, Tamer Sevintuna, 50, were hired to improve the management of city finances — in this case, by building an online ordering system for school principals.
The findings were forwarded to local and federal prosecutors for “whatever action they deem appropriate,” Mr. Condon’s office said. The city also said it would try to recover any fraudulently obtained money.
Mr. Krohe, Mr. Sevintuna and their firm could not be reached for comment, nor could Ms. Hederman.
In April, federal prosecutors charged that Willard Lanham, a consultant, had stolen $3.6 million over six years that was part of a billion-dollar school-wiring and Internet-access project.
Ms. Hederman resigned in May, but the problem of oversight went well beyond her, investigators said. Other officials responsible for overseeing the contract failed to do so and did not know its basic terms. “The D.O.E. cannot allow consultants to have free rein over D.O.E. projects that cost millions of dollars,” Mr. Condon said in his report. “D.O.E. officials who are charged with oversight of the projects must be held accountable for failing to supervise them.”
Future Technology Associates received more than $74 million over five and a half years from the Education Department to set up the electronic ordering system for principals and to integrate the department’s financial system with other city agencies’ systems. Mr. Condon began his investigation in 2009 after The Daily News wrote a series of articles alleging possible improprieties.
Investigators found the firm had subcontracted with other firms it owned to hire low-paid consultants in India and Turkey, although it was required to use workers in New York and it billed $110 an hour for their services. In all, Future Technology Associates is accused of fraudulently billing at least $6.5 million to the department between 2007 and 2011.
The firm also lied about its experience to get the no-bid contract in 2005, and falsely denied that it owned the firms to which it was subcontracting, the report said. Mr. Krohe also submitted $74,000 in expenses to entertain clients, though the Education Department appeared to be the only client, according to the report. Questioned by investigators, department officials who had eaten at the firm’s expense said they had reimbursed it in cash.
Citing as evidence of the relationship between Ms. Hederman and Mr. Krohe, investigators reported that the two had stayed together at the Mandarin Oriental hotel in Washington, traveling on the Acela train apparently for a weekend getaway, and exchanged thousands of phone calls and text messages. But even among other Education Department officials, basic questions — like why roughly one-third of the employees the firm had on its books in Brooklyn never showed up to the office (they were in Turkey and India instead) — went unasked.
When allegations against the firm first surfaced, the city defended its work. Officials cut short the contract in June as evidence of fraud mounted. On Wednesday, Natalie Ravitz, a spokeswoman for the city schools, called the scheme “a staggering web of deceit by the owners of Future Technology Associates.”
To avoid future problems, Ms. Ravitz said, the department has adopted new safeguards in its contract management process, including one Mr. Condon recommended, an automatic review prompted by cost overruns.